Creative Strategies for Generating Down Payments

With home prices a relative bargain, and builders willing to throw in valuable upgrades for free, buyers are eager to raise enough cash to close the deal. But lenders are requiring bigger down payments, so borrowers are adopting some creative methods for raising the necessary funds.

According to CNN, "Americans saw their net worth decline by $1.7 trillion in the first quarter, as declines in home values and the stock market ravaged their holdings." Despite the tremendous downward trend, economists point out that consumers are actually borrowing and spending more. Part of the reason that consumers are digging deeper into the red, rather than trying to save, is the higher costs of many retail goods.

What goes up

Gasoline prices have increased more than 150 percent since 2000, when American consumers paid less than $1.60 per gallon for regular unleaded. Meanwhile, the dollar-relative to the euro-lost 45 percent of its buying power based on Federal Reserve statistics for the same timeframe. With inflation rampant, it's harder to save money, and the average household goes more into debt each month. The savings rate for most people living in the U.S. dipped into negative territory last year for the first time since the Great Depression. But during the past weeks and months, the dollar has gotten considerably weaker as everyday commodities like groceries have gone up in price.

Finding cash

To combat inflation, potential homebuyers are coming up with novel ways to convert fixed assets into cash. With the price of gold hitting a new all-time high in 2008 for the first time in 28 years, many consumers are cashing in their gold earrings and watches, high school rings, and various valuable trinkets as scrap gold. Others are selling everything from cars to coin and baseball card collections, or they're raiding their retirement accounts.

Perhaps the best way to come up with down payment cash is to stop spending. Although that's easier said than done, it can sometimes be as simple as cutting up a credit card, and paying off the balance on high-fee cards. Other less obvious strategies can be learned by attending a credit counseling workshop. One of the things that these classes explain is how to take advantage of special programs and incentives offered by local, state, and federal governments. Some of these, for instance, let you swap labor or "sweat equity" for part of your down payment. This gives you a chance to work on the construction of your home in exchange for reduced closing expenses.

You may also be able to find a co-signer to help with the mortgage. Parents often use this strategy to help their children buy property. Another alternative is to go in with friends to buy a home as a cooperative. This tactic involves rather complicated legal paperwork to ensure that everyone gets his fair share. The main thing to remember is that "where there's a will, there's a way."